One quarter of U.S. foreclosures unoccupied; one third in California

Call it the blight of the living dead: one in every four American homes in foreclosure is a “zombie”: properties abandoned by their owner, and not yet owned by the foreclosing mortgage holder.

In California, the “zombie” share of all foreclosures rose in the first quarter (Q1) of 2015 at 7,400, according to RealtyTrac. This increase mirrors the trend in overall foreclosure starts. RealtyTrac reports just over one tenth of one percent of homes in California are in some stage of foreclosure as of January 2015.

First, an increase in zombie foreclosures doesn’t mean an increase in mortgage defaults. Rather, it points to mortgage holders moving through backlogs of black hole assets abandoned by homeowners in the aftermath of the mortgage crisis.

Second, California has around 5,000,000 owner-occupied mortgaged homes, according to estimates by the U.S. Census Bureau. 7,400 unoccupied foreclosures is just one in every 675 mortgaged homes —0.15% of all mortgaged homes in California. This is small next to the nearly 400,000 annual home sales seen in California in 2013, 2014 and projected for 2015.

Third, new jobs in California are growing at an amazing rate — 488,000 annually with nothing in sight to slow this action down. This growth is in post-recovery jobs, above and beyond the peak employment level when the recession took hold in December 2007. These job numbers suggest we need a lot more available housing to temper the increase in housing costs. Right now, one-third of an employed individual’s income is spent on shelter.

In fact, we’d even argue zombie foreclosures are a good thing, coming from an intolerable situation. Zombie foreclosures mean more underwater homeowners have found their way out of the pre-foreclosure labyrinth and into solvency. They’ve opted to escape from their black-hole assets, and their properties are closer to becoming real estate-owned (REO) resales. More of lender shadow inventory coming into the light —though this is small compared to the other type of shadow inventory: speculator-owned properties that were purchased to be flipped for a profit, not owned primarily for their rental income.

At the local level, more REO properties entering the market may make some waves in communities hit particularly hard by job loss and the foreclosure crisis, such as the Inland Empire and Central Valley. Unoccupied low-tier properties reaching the MLS do reduce neighborhood blight in working class communities which saw a disproportionately high number of foreclosures during the Great Recession.

On a wider scale, not nearly enough zombie inventory exists to shake up any part of the California housing market. A few thousand zombie foreclosures coming to market over a nine month foreclosure period won’t exert the downward price pressure needed to bring low-tier home prices closer to the historical mean and get sales volume and broker fees up to average annual levels.

klesb Mike, you have identified the problem well. Democrats in government are anxiously trying to apply their economic theories to issues that require market based solutions... – Los Angeles rental crisis continues in 2019

Featured Comment

Zestimates are great conversation starters with sellers and buyers. Zillow has done more for our bottom line than NAR ever has or will. Don’t fight the current of the river, learn to run with it. Disruption is inevitable in any industry that is fragmented or inefficient. Granted, it does feel like armchair experts and platforms are plentiful in real estate these days, but when the tide rolls out we will see the value proposition of the truest professionals in this industry shine once again.